Cable Mess

Over the past three years, AT&T Chief Executive C. Michael Armstrong spent $92 billion acquiring cable operators Tele-Communications Inc. and MediaOne in his quest to become the dominant player in the business.

In Florida, that meant AT&T has had to consolidate TCI-operated cable systems from Vero Beach to the Keys with dozens of MediaOne franchises, which included Jacksonville and several communities in Broward and Miami-Dade counties. The combined operation -- called AT&T Broadband -- has more than a million customers in Florida.

AT&T Broadband has had a tough time keeping up with its own growth, however. The process of merging billing systems and consolidating customer service call centers has been difficult and accompanied by accusations that AT&T Broadband has sacrificed customer service in the interest of expansion. Consumers have deserted in droves: This year alone, AT&T Broadband had a net loss of 32,700 cable customers statewide through May.

Meanwhile, however, AT&T Broadband is getting even bigger: It's merging with Philadelphia-based Comcast in a $45-billion deal that will create AT&T Comcast, the largest cable operator in the country.

In Florida, Comcast operates cable systems serving about 600,000 customers in Naples, Sarasota, Fort Myers, Tallahassee and other parts of northwest Florida.

The pending deal with Comcast put AT&T Broadband managers under more pressure to generate revenue, even as consumer complaints continued to mount from the earlier acquisitions. Problems have been particularly acute in Jacksonville and Broward County, where the company holds cable franchises in a number of communities.

In Broward, for example, the company now faces a lawsuit claiming it didn't expand broadband access to poor neighborhoods because it was trying to maintain a more favorable financial position to complete the Comcast deal.

The company disputes those charges and doesn't expect them to affect the merger. They're not the only problem AT&T Broadband faces in Broward, however.

In January, a team of managers put together by Ellen Filipiak, senior vice president of Florida operations, and assisted by consultants from PricewaterhouseCoopers, began analyzing AT&T Broadband in Florida to improve its operations -- starting with Broward.

Within months, after looking at just part of AT&T Broadband's business there, the group identified several million dollars slipping through the company's hands because of billing inaccuracies.

For example, the analysis found that the cable system was missing out on $1.1 million a year from subscribers who were receiving upgraded digital service but weren't being billed for it. In addition, some 11,313 subscribers were inadvertently receiving discounts, costing AT&T's Florida cable operation another $239,101 in annual revenue.

But the review also uncovered mistakes on the other side of the ledger: Without providing numbers, the analysis indicated some Broward County customers were being overcharged each month for cable converter boxes, which give customers access to premium and pay-per-view channels.

Filipiak referred all questions about AT&T Broadband's operations in Florida to corporate executives in Denver. There, spokeswoman Tracy Baumgartner says the company notified a "minimal'' number of customers in Broward County in July that they had been overbilled or underbilled. Those overbilled on the monthly rental of converter boxes had paid $3.13 a month per box instead of $1.85, the correct amount. The customers received a six-month credit on the difference, Baumgartner says.

Officials in several Broward County communities, however, say the company never notified them about the overbilling. A letter sent to the city of Fort Lauderdale in April by AT&T Broadband's director of franchising and government affairs, Michael E. Tanck, informed city officials that AT&T Broadband "will be conducting an internal review of the accuracy of our customer billing."

A subsequent letter to the city dated June 19 refers only to underbilling, indicating that AT&T Broadband had found that a "coding error allowed some customers in your community who did not order Cinemax to receive it at no charge."

Those customers were advised of the error and given the choice of paying for the premium channel or having it disconnected, the letter indicated. There was no mention of overbilling in either letter. Mark Pallans, telecommunications manager for the city of Fort Lauderdale, says he hasn't seen any letter informing customers of overcharges.

The same holds true in other Broward communities. As of early October, "I'm not aware of any broad scale credits to customers," says Leslie Stout, assistant to Broward's chief information officer.

Baumgartner says AT&T didn't notify local franchise or city officials about any overcharges because the company isn't required to do so. She says the company has expanded its review of its billing system statewide.

Many Broward communities were already unhappy with AT&T Broadband's operations: Before they allowed AT&T Broadband to transfer its franchise agreement to AT&T Comcast, several had extracted payments and assurances of better service and upgraded capabilities. Typically, franchise contracts require local municipalities to approve mergers involving the companies that hold their cable franchises.

Jacksonville woes
South Florida isn't the only hot spot for AT&T, however. In Jacksonville, Mayor John Delaney says Filipiak told him recently that AT&T Broadband had found that 2% of its customer base in south Florida had been overbilled and that the company believes the 2% figure holds true for the rest of the state. If that's the case, then some 20,000 AT&T Broadband customers in Florida have been overbilled.

Dissatisfaction with AT&T in Delaney's city reached such a point that it's trying to revoke AT&T's franchise -- a difficult and highly unusual step.

At an October press conference announcing the move, city officials said AT&T Broadband has violated its franchise contract by failing to meet a promised deadline for upgrading the cable system, overcharging customers and providing poor service over the past year.

AT&T Broadband by its own admission had overbilled 4,000 Jacksonville subscribers, Delaney said. "I've never dealt with a corporation that's behaved this way."

Revocation of its franchise would be a huge blow to AT&T. The company purchased the Jacksonville franchise from MediaOne in June 2000 for an estimated $1 billion -- about $5,000 per cable subscriber -- but has had problems managing it from the outset.

In 2001, complaints to the city's consumer hot line soared from an average of 50 a month to a record 1,200 in June. Since then, complaints have dropped but were still running around 150 a month through August 2002.

There also have been questions about the company's truthfulness in reporting its customer service problems to Jacksonville officials. In reports to the city, AT&T Broadband has acknowledged that it had difficulty meeting a requirement to answer 90% of customer service calls within 30 seconds. But in some of the filings the cable operator has apparently presented a rosier picture than its own internal reports paint.

In the first year after AT&T took over the cable operation in Jacksonville, for example, AT&T Broadband reported to the city that it had answered an average 80% of all customer calls within 30 seconds. However, an AT&T Broadband internal report shows the company answered only 58% of calls within 30 seconds. The company has met the 30-second standard in only three of nine quarters since June 2000.

Last year, AT&T Broadband fired manager Kelli McAnany in Jacksonville two days after she went public with allegations that the company had been giving misleading customer service data to the city. (She has since filed a wrongful termination suit; AT&T denies misleading the city.)

McAnany's allegations and the flood of e-mails and letters to City Hall complaining about AT&T's service led Jacksonville City Councilman Matt Carlucci to ask the state Attorney General's office to investigate AT&T Broadband. Florida Attorney General Bob Butterworth's office has subpoenaed records and expects to make a determination by the end of the year.

"We're not sure they've (AT&T executives) been working with us in good faith," Carlucci says. "It's been very frustrating."

The service problems also have prompted a class-action lawsuit by Jacksonville attorney Woody Wilner. The suit alleges many AT&T Broadband cable customers were charged for channels they didn't subscribe to, didn't receive refunds they were entitled to when technicians were late for appointments and paid too much for cable boxes.

No single issue has strained AT&T Broadband's relationship with Jacksonville more than AT&T's failure to deliver on an agreement made in 1997 by MediaOne, the previous cable operator.

When AT&T Broadband took over MediaOne's franchise agreement two years ago, it also assumed an obligation to upgrade all of the primary service area. That meant installing new, higher capacity broadband lines that could carry more cable channels, voice, data and internet.

By the spring of 2001, however, AT&T Broadband, struggling under the debt it took on to finance the acquisitions of MediaOne and TCI, didn't complete the upgrade. Instead of negotiating an extension to the agreement, AT&T Broadband unilaterally tried to push the upgrade deadline out two years, city officials say.

Howard Conner, Jacksonville's cable franchise manager, signed an addendum to a letter written to him by Ann Murphy, AT&T Broadband's director of government affairs in Jacksonville, confirming that he had discussed extending the deadline, which would require action by the City Council.

AT&T then used the letter and Conner's note to indicate to the Federal Communications Commission that the company had met its federally required "social contract" with the city.

The city has hired an attorney, Matthew Leibowitz, to advise it on all its dealings with AT&T Broadband. Leibowitz says the city is "exploring" whether AT&T's use of the Conner letter amounts to misrepresentation and fraud. AT&T Broadband acknowledges that it missed the upgrade deadline, but a company spokeswoman says the letter was never intended to mislead or rewrite the contract. "This letter was a summarization of our discussion with Howard Conner," says AT&T spokeswoman Sarah Eder.

In an effort to salve its relationship with Jacksonville, AT&T hired former Florida Speaker of the House John Thrasher to help negotiate a settlement with the city. A big sticking point is Wilner's class-action suit. AT&T Broadband wants any settlement with the city to preclude Jacksonville cable subscribers from being part of any settlement of the class-action suit. The city won't agree to that and also wants to reserve the right to pursue "newly discovered" wrongdoing that might be discovered.

At the October news conference, Delaney and City Council President Jerry Holland announced that the settlement talks had fallen apart and that the city was serving AT&T Broadband with the required 30-day revocation notice.

Eder says the company had been negotiating in good faith and had offered to pay a $7 rebate to most customers, accelerate the completion of the upgrade of the cable system and donate $50,000 to a schools-related charity, the Alliance for a World Class Education.

Eder questions the city's motives. "We believe different agendas are at play," she says. "The mayor wants the revocation so the cable franchise can be returned to friends of the city." AT&T will fight the revocation in court, the company says.

Indeed, some in the city would like to revoke AT&T Broadband's contract to operate the cable franchise and turn it over to JEA, the city's stellar-performing municipal electric and water utility. The JEA has the financial muscle to buy the 200,000-subscriber system and could possibly pick up the franchise for less than a third of the estimated $1 billion that AT&T paid.

Comcast spokesman Tim Fitzpatrick in Philadelphia declined to comment on AT&T's problems in Jacksonville, the class-action lawsuit and the Florida Attorney General's investigation. "Prior to the close of the merger, it would be inappropriate to comment on issues involving AT&T service areas," he says. "We continue to expect the merger to close by the end of year," when federal regulators are expected to give the merger the final approval it needs, he says.